INDUSTRY BRIEF: Carmakers speed up supplier payments amid calls to end price war

Several major Chinese automakers announced that starting Tuesday this week they will reduce payment times to their suppliers to within 60 days, amid repeated official calls opposing destructive price wars that have pressured the entire auto industry. The move is widely seen as the latest industry-led effort to counteract cutthroat competition that has sent many companies in the auto supply chain into the red.

According to financial publication Caixin, companies committing to the expedited payment times include FAW Group, Dongfeng Motor (0489.HK), GAC Group (2238.HK, 601238.SH), Seres Group (601127.SH), Geely Auto (0175.HK) and Changan Automobile (000625.SZ). BYD (1211.HK; 002594.SZ) and Chery Automobile also followed suit on Wednesday, and the list is expected to grow.

BYD said on its official WeChat account that the initiative aligns with national directives to ensure supply chain stability, as it pledged to “take concrete action to advance the healthy growth of China’s automotive industry.”

The report notes that since 2023, automakers have passed some of their cost pressures on to their upstream suppliers. During procurement, carmakers often award contracts based on the lowest price and ask their suppliers to further reduce prices. Financial reports from leading automakers show that in 2024, average payment terms to their suppliers exceeded 120 days.

The China Iron and Steel Association recently warned that since last year, many major automakers have demanded price cuts of over 10%, beyond what is financially viable. Some automakers delay payments by months, using corporate promissory notes instead of direct cash payments — essentially transferring their own financing costs and pressures to their upstream suppliers, straining steelmakers’ finances.

According to the association, the average sales profit margin for key steelmakers in 2024 fell to just 0.71%, down more than 46% from 1.32% in 2023.

By Lee Shih Ta

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